and Insolvency - A Guide for Insolvency Practitioners to employees'
rights on the insolvency of their employer
This document provides general information only.
Every effort has been made to ensure that the information is
accurate, but it is not a full and authoritative statement of the law
and you should not rely on it as such. The Insolvency Service cannot accept any responsibility for
any errors or omissions as a result of negligence or otherwise.
The Insolvency Service has revised this booklet for the
guidance of insolvency practitioners (IPs) in dealing with claims under
the insolvency provisions of the Employment Rights Act 1996. Further
information is available from our Redundancy
Payments Offices (RPOs) listed in Appendix 2. If in doubt, you
should seek your own independent legal advice.
of State for Business, Innovation & Skills (BIS) is
responsible for making payments from the National Insurance Fund (NIF)
under the insolvency provisions of the 1996 Act. Our RPOs carry out this
function on behalf of the Secretary of State, operating to the standards
published in the Insolvency Service Charter. These standards focus on
the speed and accuracy of payments and on responding promptly and
courteously to enquiries. They are set out on the following website
As an IP, you
have specific responsibilities under the 1996 Act. These are different
from, though closely related to,
your statutory duties under insolvency legislation in the administration
of the affairs of insolvent employers and the assessment of claims of
creditors, including employees. You play a vital role in the system.
co-operation between IPs and RPOs is essential for the system to operate
RPO managers are happy to talk to you about any problems, whether on specific cases or general procedures, and may be able to help with training IP staff new to this work.
- Scope of the provisions
the part 12 of the 1996 Act, RPOs pay certain entitlements (within
limits) owed to former employees of insolvent companies.
This legislation, which implements the EU Insolvency Directives
80/987/EEC and 2002/74/EC, guarantees a basic minimum payment to
employees of insolvent employers, as they would otherwise have to wait
some considerable time for payment, or get no payment, as creditors in
the insolvency proceedings. Outstanding
contractual debts remain listed in the insolvency and may become payable
only if the sale of a company’s assets realises enough money.
Employees may also be entitled to redundancy pay under the
separate provisions of part 11 of the 1996 Act. After they have secured
this pay, the employees’ rights and remedies in respect of these debts
transfer to the Secretary of State. The claims for basic minimum payment
and redundancy payment (but not for pensions) are paid direct by the RPO
to the employees.
must claim directly to you, as the IP, for debts that fall outside the
scope of section 184 of the Employment Rights Act 1996. The RPO has no
involvement in such payments. Similarly,
if a director’s claim for wages etc. is not paid from the NIF, you may
admit the claim directly in the insolvency.
2. Definition of insolvency
insolvency provisions of the 1996 Act apply only when an employer has
become legally insolvent as
defined in section 183 of the 1996 Act. The RPO has no discretion to
make insolvency payments in any other circumstances. The table in
appendix 1 shows the categories of insolvency included in the statutory
definition and the dates when each becomes effective under the 1996 Act.
3. An insolvency practitioner
an IP (referred to in the 1996 Act as a ‘relevant officer’), you are
the person appointed to deal with an employer’s insolvency, that is:
a trustee in
bankruptcy or, in Scotland, a permanent trustee;
a receiver or
under a composition or arrangement between an employer and his or her
creditors, including the supervisor of a voluntary arrangement proposed
for the purposes of, and approved under, the Insolvency Act 1986;
of a Company Voluntary Arrangement;
under a trust deed executed by an employer for his or her creditors;
Receiver acting as provisional liquidator or interim receiver.
have specific responsibilities towards creditors (including, where
appropriate, employees) under insolvency legislation. You also have a
statutory responsibility under Section 187 of the 1996 Act to provide
the Secretary of State on request, as soon as is reasonably practicable,
a statement of the amount of any unpaid debt owed by the insolvent
employer to any employee who is seeking payment from the Secretary of
for making payments under the 1996 Act rests with the Secretary of
State. Acceptance of debts
in an insolvency lies with you, the IP. The RPO must be satisfied of the
insolvent employer’s liability for payment before it will pay a claim.
It will not automatically pay even if you are prepared to admit the
claim in the insolvency or have agreed the amount or status of the claim
with the employee.
excluded from the provisions
categories of workers are excluded from the insolvency provisions of the
1996 Act. These are:
· employees who normally work outside the UK, unless they have enough connection with the UK to bring themselves within the scope of the ERA. This will involve consideration of, amongst other things, the employee’s contract of employment, and where the employee was paid, taxed and received any benefits.
who do not qualify to be paid from the NI Fund may be paid directly from
covered by the provisions
qualify for insolvency payments, an applicant must be an employee as
defined by the 1996 Act. The term “employee” means an individual who
has entered into or works (or worked) under a contract of employment.
The Act defines a contract of employment as “a contract of service or
apprenticeship, whether express or implied and (if it is express)
whether oral or in writing”.
who are partners of a business or engaged as independent contractors or
freelance agents, and others who work under contracts for services (as
opposed to contracts of service) are not covered by the term “employee”.
or not someone is an employee is a matter of law and fact.
The main factors considered significant in determining employee
the individual has a written contract of employment, whether it is
consistent with a contract of service;
degree of control exercised by the employer over work done by the worker
how the work
the worker was considered to be part of the business, in the sense that
the work done by the worker formed an integral part of it rather than
simply provided a service for it;
worker's involvement included a share of the profits or a risk of loss;
· whether the work was done on the worker's own account or for the employer.
6. Claimants whose employee
status may be in doubt
most common atypical workers encountered are:
If there is doubt, or a dispute, you should consult the RPO for its opinion, as ultimately the decision whether or not to pay a claim under the Employment Rights Act rests with the Secretary of State subject to any ruling by an employment tribunal or court. If you cannot agree with the RPO on the employee status of an individual, the matter will be referred to an employment tribunal to determine. You may be called as a witness to the hearing. For guidance on the above categories where problems have arisen in the past, see Appendix 6.
7. Death of an employee or
206 and 207 of the 1996 Act set out employees’ rights if the employee
or employer dies. In either
case, action under the insolvency provisions can be begun or continued
by (or against) the deceased’s personal representative.
8. Debts payable under the 1996
following debts can be paid where the employer has become insolvent and
the employee’s contract of employment has been terminated:
of pay for one or more, but not more than 8 weeks (certain statutory
payments are treated as arrears of pay for these purposes);
for up to 6 weeks in all during the 12 months ending on the date of the
for notice given, or for an employer’s failure to give proper notice,
for the period required by section 86 of the 1996 Act;
a basic award
of compensation for unfair dismissal made by an employment tribunal;
repayment of any fee or premium paid by an apprentice or articled clerk.
but the last of these debts are subject to a limit on the amount that
can be paid in relation to any one week. At the time of printing it is
£330. Please note that
the Department for Business, Innovation & Skills (BIS)
review this limit annually, usually from 1 February. For information about the correct statutory limit in force
please see the “Employment Matters” page on the BIS website on the
following reference: http://www.BIS.gov.uk/employment/employment-legislation/employment-guidance/page19310.html
9. Arrears of pay
RPO will pay arrears of pay owing from any one or more weeks up to a
maximum of 8 weeks. Periods of less than a week from different weeks
cannot be totalled to make a single week; they must be treated as
separate weeks for the purpose of counting towards the 8-week maximum.
The weeks for which arrears are claimed need not be the latest weeks of
employment, nor need they be consecutive. They may fall at any time
before the appropriate date (see paragraph 20) and should be the 8 weeks
that are financially most beneficial to the employee. (“Week” for
these purposes is defined in section 235(1) of the 1996 Act.)
statutory limit applies to the gross debt, before deduction of basic
rate tax, ERNIC etc. It must, where appropriate, be applied
proportionately to part weeks. Arrears of pay may include the following:
wages (or unpaid portions of wages), overtime, bonuses and commission,
provided that these were contractually payable and that they relate to a
specific period of time;
deducted for union dues but not paid over – these must be paid to the
employee, not to the union;
from wages under an attachment of earnings order not paid to court
certain statutory payments
to which the employee is entitled, such as:
time off in specified circumstances;
where the employee is suspended on medical or maternity grounds;
a protective award made by a tribunal;
payments for temporary lay-off.
a claim comprises more than one of these elements, you should bear in
mind that the limit applies to the total claim for a particular week,
not to individual elements of it. You can find detailed guidance on the
calculation of a week’s pay and the application of the weekly limit in
10. Holiday pay
RPO will pay any holiday pay owing, up to a maximum of 6 weeks, provided
the employee became entitled to it during the 12 months ending with the
appropriate date (see paragraph 20). Holiday pay includes pay for holidays already taken and holidays
accrued but not yet taken.
limit on the amount payable in respect of any one week applies in all
cases and must be apportioned as necessary (see Appendix 4).
working time regulations provide a basic statutory minimum holiday
entitlement but some employers give a greater contractual entitlement to
holidays. These are not two
separate entitlements – the contractual entitlement is used to satisfy
the statutory requirements and vice versa.
However, an employee can take advantage of whichever right, in
any particular respect of the holiday entitlement, is the more
statutory holiday entitlement will be increased to 4.8 weeks from 1
October 2007 and to 5.6 weeks from April 2009.
For information about how to calculate entitlement please see the
Department for Business, Innovation & Skills (BIS) website
which includes a ready reckoner for calculating holiday entitlement.
Please note that the Working time Regulations provide the minimum
statutory entitlement and that any contractual entitlement counts
towards satisfying those requirements.
11. Compensatory notice pay
RPO can pay the amount, subject to the statutory limits, which the
employer was liable to pay the employee for the minimum period of notice
required by section 86 of the 1996 Act or for his failure to give that
period of notice. The statutory minimum periods of notice are:
one week for
employees continuously employed for one month or more but less than two
one week for
each year of continuous employment
of two years or more but less than 12 years;
12 weeks for
12 or more years of continuous employment.
Employees who work under
fixed-term contracts that specify the duration of employment may not
require any notice of termination. No right to notice is imported into
such contracts by section 86 of the 1996 Act. However, if a fixed-term
contract does allow early termination where the employer gives notice,
section 86 may apply. You can find more detailed guidance to the notice
provisions at: http://www.BIS.gov.uk/employment/employment-legislation/employment-guidance/page18474.html
an employer gave an employee notice but, because of the insolvency, the
employment actually terminated before the notice period expired, the
periods before and after the termination should be dealt with
differently. An employee’s
notice period starts the day after he or she is given notice.
If no notice is given it starts the day after he or she is
dismissed. If the employee
worked all or part of the notice period but was not paid for it, the
claim is paid as if it was wages and will be subject to basic tax and
national insurance, however, the period does not count toward the
limit of 8 weeks’ arrears of pay as it is attributable to the number
of weeks notice due. The IP should make this quite clear on the
RP14. Pay for the balance
of the period that relates entirely to the period after termination
should be claimed as notice pay; it should be assessed and paid as
damages for breach of contract. Please
ensure that the RPO is notified of any such cases in writing.
employer who fails to give the minimum statutory notice is liable to pay
damages for wrongful dismissal. Such damages are subject to mitigation,
as is an employee’s entitlement to notice pay under the insolvency
provisions. Income received by the employee will be offset against any
notice pay due from the insolvent employer. The employee must take all
reasonable steps after the dismissal to minimise his or her loss by
finding another job or by claiming the statutory benefits to which they
may be entitled. If an employee has failed to take these steps during
the notice period, the RPO may reduce the amount of the notice payment.
If an employee gives notice of termination to the employer and is then dismissed before the end of the notice period, you should ignore the employee’s notice period in determining the statutory notice that the employer must give. This is because it is the employer that actually terminates the employment. However, one of the qualifying conditions for payment is that the employee must be “ready and willing to work during the notice period, even though there is none available”. This means that for the purposes of notice pay you should count only the period from the termination date to the end of the notice period given by the employee.
award of compensation for unfair dismissal
unpaid basic award of compensation for unfair dismissal made by an
employment tribunal is payable in full. A compensatory award is not
13. Reimbursement of apprentices’
or articled clerks’ fees and premiums
The RPO may pay a sum that it considers reasonable to reimburse the fee or premium for the unexpired term of the apprenticeship or articles.
14. Protective award
due to an employee under a protective award made by an employment
tribunal under section 189 of the Trade Union and Labour Relations
(Consolidation) Act 1992 is payable, within limits, under the insolvency
provisions. It is treated for these purposes as arrears of pay. A
tribunal making a protective award must specify:
the number of
days in the protected period – which should not exceed 90;
the start date
of the protected period – this is the date of the first of the
dismissals being complained about or the date of the award, whichever is
description of employees covered by the award.
Secretary of State will not have been a party to the tribunal
proceedings. Therefore, on receiving the tribunal’s decision you
should send a copy to the appropriate RPO, with a list of names and
addresses of the relevant employees. You also need to send a list of the
names and address of the employees to the Local Jobcentre Plus as
directed by the recoupment of Jobseekers allowance regulations. The Jobcentre is responsible for lodging a claim for the
Jobseekers allowance paid during the protected period, with the
exception of the period paid by the RPO.
You should also check that all the bulleted items listed above
have been included in the decision. If any of these has been omitted, it
may be impossible to calculate the payments. In such cases you should
contact the RPO immediately for advice, as the parties may have to apply
for a review of the tribunal’s decision.
a decision is worded so as to apply only to union members. This is wrong
in law, as the 1992 Act does not discriminate against non-union members
– “union member” is NOT a description of employee.
You should advise any excluded ‘description’ of employees who
think they should be covered by the award to apply directly to an
employment tribunal under section 192 of the 1992 Act, as this is the
only legal means to resolve the exclusion.
RPO calculates the awards and sends the payments direct to the
15. Redundancy pay
separate provisions of section 168 of the 1996 Act the RPO can also pay
any statutory redundancy pay to which an employee is entitled. The
redundancy payments provisions are outlined in the booklet “Redundancy
Entitlement – Statutory Rights” (PL808), available on the “Employment
Matters” page on the BIS website on the following reference http://www.BIS.gov.uk/employment/employment-legislation/employment-guidance/page15686.html
can find basic information about redundancy entitlement where an
employer is insolvent in the booklet “Redundancy and Insolvency – A
Guide for Employees” (which also includes a tear-off RP1 claim form).
You can get this booklet free of charge (see Appendix 2). For general
enquiries about entitlement to these payments, call the help line (see
information includes the changes made under the Age legislation, which
came into force on 1 October 2006.
The main points are:
Removal of the lower and
upper age limits of 18 and 65
Removal of age tapering in
the year before retirement age 64
· Removal of optional occupational pension offset against redundancy pay.
Statutory maternity and sick pay
enquiries about entitlement to statutory maternity pay, please contact
Her Majesty’s Revenue and Customs (HMRC) as it has responsibility for
maternity pay. Contact your
local tax office for assistance, or its helpline for experienced
employers on 08457 143143.
enquiries about statutory sick pay, contact the Department for Work and
Pensions (DWP) as this is its responsibility.
Please contact your local Jobcentre Plus for information, or of disputed
payment contact HMRC on the above number.
17. Unpaid pension contributions
As well as making payments to employees, the RPO may make payments to pension funds where the employer has failed to pay contributions due on his or her own behalf or the employees. Arrangements for such payments are described briefly at appendix 7 and more fully in a separate leaflet IL2 “Insolvency of Employers: safeguard of occupational pension scheme contributions”. You can get this booklet free of charge - see appendix 2.
in the insolvency
Payment by the RPO does not prejudice the right of any employee to seek recovery of any other debts, or debts in excess of the statutory upper limits, from the insolvent employer’s assets in the usual way. Nor does payment by the Secretary of State imply that you, as IP, are bound to admit a claim by the employee, or the Secretary of State’s subrogated claim, which you do not think is valid under insolvency legislation. If, before payment is made from the NIF, it becomes apparent that you do not agree that the employee is entitled to payment and would not accept the claim in the insolvency, the RPO would reject the claim and refer the matter to an employment tribunal for a legal ruling on the validity of the claim against the employer.
19. Retained employees
If you keep employees at work after the date of insolvency, you should pay wages for that period out of the funds of the insolvent employer, which you are entitled to use to continue necessary services. You must ensure that no claims for wages for periods after the insolvency date are made under the insolvency provisions if the employees are later dismissed. Wherever possible, you must give retained employees proper notice of the eventual termination of their employment, to reduce the debt against the employer and the burden on the NIF.
20. The appropriate date
RPO has the power to pay only the debts that are due and unpaid on the
“appropriate date”, defined as:
in relation to
arrears of pay (except remuneration under a protective award) and to
holiday pay, the date on which the employer became insolvent;
in relation to
under a protective award or to a basic award of compensation
for unfair dismissal, the latest of :
date on which the employer became insolvent;
termination date; and
the date on
which the award was made;
in relation to
any other debt, whichever is the later of:
date on which the employer became insolvent;
o the employee’s termination date.
21. Claimants right to complain
to an employment tribunal
employee who has applied for an insolvency payment has the right, under
section 188 of the 1996 Act, to complain to an employment tribunal
against the decision of the Secretary of State if:
of State has failed to make any payment; or
the payment by
the Secretary of State is less than the amount that the employee
considers should have been paid.
The respondent in all such cases will be the Secretary of State. In general you as IP should not be a respondent, but may be called as a witness in any dispute over entitlement. If the RPO rejects a claim made under the insolvency provisions, it will advise an employee to name as respondent in any appeal the Secretary of State for Business, Innovation & Skills and to give the address of the RPO dealing with the claims. The RPO will also advise the employee to name any other appropriate respondent. For example, the transferee in a case where there was a TUPE transfer. If you receive a copy of the tribunal claim form ET1 for claims against the employer, it would be helpful if you would inform the RPO if you notice that the Secretary of State has not been named as a respondent rather than ignore the claim. The RPO can then intervene in the case if needs be.
- The procedure
Losing a job through the employer’s insolvency can come as a shock, even where the employer has been known to be in financial difficulty for some time. One of the first things employees will want to know is what they are entitled to and how they can get help. The resources that you can make available to help with such queries will vary. In customer surveys employees often complain that they did not receive the relevant explanatory leaflets. Appendix 3 lists the main forms and booklets used. Please ensure that you issue the complete RP1 & Booklet – A guide for employees on the insolvency of their employer. Do not tear out the RP1 forms or issue down loaded RP1 forms without the booklets.
23. RPO objective
RPO’s objective is to ensure that employees receive money to which
they are entitled as quickly as possible. The RPO may calculate some
individuals’ entitlements sooner than others.
This may be because it has to make extra enquiries, for example
for directors, sub-contractors or employees on long-term absence,
transfer information. However, the RPO will make every effort to achieve
the targets set out in the Insolvency Service Charter booklet.
addition to this our Inspectors carry out a random check on 20% of wages
records, but they will carry out additional checks where there are
specific concerns about the records or the legitimacy of employees
claims. It would assist the
Inspectors if you have all the records available for inspection when
24. The Insolvency Service
The charter outlines what debts can be paid, briefly describes how claims are handled and gives the number of the helpline (see appendix 2), which is there to advise and deal with general enquiries. Please issue a copy to employees.
25. Notification and
consultation about proposed collective redundancies
may consult you about putting a company into insolvency before your
formal appointment. At that stage you should recommend that the employer
starts the redundancy notification and consultation process immediately
so that it is in motion at the time of your appointment.
may also wish to advise employers to contact the Jobcentre Plus for
assistance for employees facing redundancy.
More information about how the Jobcentre can help is available
26. Consultation with employees’
representatives and protective awards
company’s insolvency does not affect the normal statutory duty to
consult appropriate employees’ representatives about proposed
redundancies, as set out in section 188 of the Trade Union and Labour
Relations (Consolidation) Act 1992.
for conducting such consultation rests mainly with the employer but will
fall to you if the employer has not started the consultation process
before your appointment. Failure to carry out the necessary consultation may lead to a
protective award for the affected employees and increase the employer’s
may not incur a liability against the company if there are special
reasons for you being unable to comply with the information and
consultation requirements within the statutory time scales.
You should take all reasonable steps to reduce the liability against the company and the NI Fund by taking the relevant action within the time available before the dismissals and defending this action before an employment tribunal. You can find further information in the booklet “Redundancy consultation and notification PL833”, which is available on the following BIS website: http://www.BIS.gov.uk/employment/employment-legislation/employment-guidance/page13852.html
27. Notification process
employer proposing to dismiss 20 or more employees as redundant at one
establishment within a 90-day period has a statutory duty to notify the
Birmingham RPO who acts for Secretary of State for Trade and Industry
(section 193 of the Trade Union and Labour Relations (Consolidation) Act
1992). This is so that government departments and agencies and the
Jobcentre Plus Rapid Response Service can be alerted and prepared to
take any appropriate measures to assist or retrain the employees in
question. Changes to the
legislation following the ECJ case in Junk include the
requirement to notify the Secretary of State at the Birmingham RPO before
any individual notices of dismissal are given.
notification must be in writing on form HR1, which you can get from the
BIS Publications Orderline on 0845 015 0010, or email pubs.unit@BIS.gsi.gov.uk.
You can also download the form from http://www.insolvencydirect.bis.gov.uk/pdfs/rpforms/hr1.pdf
is a specified time limit for a notification.
The date of notification is the date on which it is received by
the RPO. The minimum times are:
at least 30 days if
between 20 and 99 employees may be dismissed;
at least 90 days if 100 or
more employees may be dismissed
employer who has already notified one group of proposed redundancy
dismissals and later decides to make a further group redundant need not
add the numbers of employees together to calculate the minimum period
for either group.
is no obligation to notify redundancies of fewer than 20 employees
within a 90-day period, but employers may nevertheless wish to consider
doing so in borderline cases – particularly if the numbers involved
notification should be sent by post, fax, email, or delivered by hand to
the office stated on form HR1. Employers must also give or send a copy of the notification to the
representatives with whom they must consult about the proposed
In special circumstances it may not be reasonably practicable for the employer to meet fully the requirements for minimum notification periods. In such circumstances, the employer must take all reasonably practicable steps toward meeting the requirements and explain why they cannot be met in full – it may help to reduce the period for a protective award.
28. Penalty for non-compliance
with notification procedure
If an employer fails to give the required notification, and failed to demonstrate any special circumstances for not fully meeting the requirements, the RPO may start legal proceedings that could lead, on summary conviction, to a fine of up to £5,000. (This upper limit is subject to review from time to time.)
29. Issue of claim forms
is the main application form for payment from the NIF.
It is incorporated as a tear-off in the booklet “Redundancy and
Insolvency – A Guide for Employees”.
The whole booklet should be issued to employees as soon as
possible after dismissal. The booklet should not be issued to any
employees until they have been formally made redundant, or transferred
under TUPE 2006. This is because their contract of employment must have
officially ended before the RPO can consider making payments. Where
employees have left of their own accord and are owed arrears of pay
and/or holiday pay, an RP1 can be issued. In these cases the RP14a must
state clearly that the employee resigned and the date of the
should complete form RP1 as soon as possible after dismissal. Some IPs
may use a computerised version of RP1 that sets out the relevant
information and requires only agreement and signature by the employee.
This is acceptable. However, employees must not be asked to sign and
date blank forms to be completed later on their behalf. An appointed
agent or personal representative may complete an RP1 on an employee’s
behalf if the employee needs help in completing the form because of
incapacity or illiteracy, or if an employee dies soon after the
form is the main application for claiming compensatory notice pay. It is
computer generated and the RPO will send it direct to employees at the
end of their statutory notice period.
form is an application for a refund of notional tax deducted from
compensatory notice pay and is sent out by the RPO.
30. Issue of information
form is for more information about office holders in company and is sent
out by the RPO.
is for more information from subcontractors, freelance workers and
casuals and is sent out by the RPO.
Questionnaire is for more
information about the company and TUPE transfers (Transfer of
Undertakings (Protection of Employment) Regulations 2006 (SI 2006 /
246). IPs should hold stocks of
RP14s, as they are required in all cases.
The RPO does not usually make payments
without a statement from the IP about whether or not the undertaking of
the insolvent employer has been transferred to a new owner.
of debt owed to employees.
The RPO does not usually make payments without a statement from
the IP of the amount of unpaid debt owed to the employees at the
appropriate date. The RP14A is the relevant form for notifying these details.
should hold stocks of RP14As and send one to the RPO before or with
the first completed RP1 claim forms.
IP’s who use Turnkey can send in an electronic version.
form is for more information about TUPE transfers from the transferee or
the transferor and is sent out by RPO
form is for more information about TUPE transfers from an employee and
is sent out by RPO.
31. Action on return of
employee should return form RP1 direct to the IP, who will verify and
forward the claims to the relevant RPO as soon as possible. Checks may
be made later by an RPO Inspector or by enquiry from an RPO. Records
maintained by the insolvent employer should generally provide enough
information from which to check or calculate an employee’s
entitlements. All such information must be made available. If the wage
records are insufficient, you should discuss the facts of the case with
the appropriate RPO to agree how far the claims should be admitted.
Completion of questionnaire and statement of employees’ debts
RPO cannot pay debts owed to employees until it is satisfied that their
employment has not been transferred to a new employer through the TUPE
Regulations and received a statement of debts owed to the employees.
Form RP14 is a questionnaire seeking information about whether an
undertaking has been transferred as well as general information about
the employees and employer’s contractual arrangements.
send RP14 and RP14A to the RPO with the first completed claim forms,
with a copy of any sale agreement and any other relevant documents. If
you submit claims without an RP14, the RPO will send one to you.
you continue to trade the business of the employer but dismiss employees
at various stages, you should not wait until all dismissals have been
carried out but should send an RP14 covering the first batch of
dismissals and inform the RPO in writing of any change in circumstances
for each subsequent batch, particularly about TUPE transfers. In this
way the RPO can process without delay claims for any employees who are
clearly not covered by a transfer, while investigating claims for other
later dismissals that may be covered.
information about the TUPE regulations and how they can affect claims is
set out in Appendix 4. Further information is available at: http://www.BIS.gov.uk/employment/trade-union-rights/tupe/page16289.html
If you are uncertain about the effect of the regulations in a particular case, please discuss this with the appropriate RPO. Any guidance provided by the RPO will be on a “without prejudice” basis. Whether or not the RPO considers that claims are payable in any circumstances, employees have a right to bring claims in an employment tribunal against the transferee employer, if they consider that the regulations apply to them.
off of debts between employee and employer
Occasionally, an employee will owe money to his or her employer at the appropriate date. In such cases the employee’s entitlement under the insolvency provisions will be the net amount owed after set-off, see the EAT case of Secretary of State for Employment v 1) Wilson & ors and 2) BCCI  IRLR 330. (Income tax and ERNIC, however, are payable on the gross amount owed before set-off.) You must give the RPO full written details of the amount owed to the employer and the gross amounts owed to the employee and attach it to the RP14A. If there is a written agreement between the employer and employee on repayment, you should provide a copy. It is essential that the information be forwarded to the RPO immediately you become aware of it. Unless you give this information at the outset, the RPO will not be able to initiate the set-off. You will, therefore, have to pursue the individual for the money owed to the insolvent company.
34. Attachment of earnings
Occasionally an employee may have a court order requiring their employer to make deductions from their wages and pay them directly to the court (or other party). As the Secretary of State is not the employer, the RPO is not empowered to make deductions and make direct payment to the court. In such cases you must tell the employee that he or she is responsible for making the payments to the court.
35. Deduction of tax and
national insurance contributions by RPO
RPO will deduct from arrears of pay and holiday pay an amount of income
tax at the basic rate in force at the time payment is made. The employee’s
share of ERNIC will also be deducted from the payment. The rates of
contributions and earnings limits are the weekly rates and limits
current at the time of payment, without regard to any previous pay
practice. The number of weeks covered by an arrears payment will also be
taken into account in assessing ERNIC liability.
36. Subrogated rights
Where an employee is paid from the NI Fund, the RPO acting on behalf of the Secretary of State takes over the employee’s rights to recover that amount of the debt under Sections 167 and 189 of the 1996 Act. These rights include any right of priority conferred under insolvency legislation. The RPO has the same rights as the employee to be paid in priority to the employer’s other creditors. The RPO’s claims must be calculated against the individual employees’ entitlements and not as a gross overall total against the employer. Any sums that the RPO recovers from the employer are repaid to the NIF. There is no difference in the treatment of statutory or contractual entitlements for subrogation purposes.
37. Lodging the RPO claim in an
insolvency provisions of the 1996 Act do not affect the priority given
to certain debts by Schedule 6 to the Insolvency Act 1986. This Schedule
says that certain payments will be given preferential treatment within
the limits that govern such priority.
priority claims are:
holiday pay, that is for holiday not yet taken to which the employee
became entitled in the 12 months before the insolvency date;
wages up to
£800 in the four months immediately before the insolvency date;
a protective award is
treated as wages. The
period of the award may span the insolvency date.
If so, the period before the insolvency date may be preferential
subject to the limit, and the post-insolvency period is unsecured
claims are certain occupational pension contributions;
contributions deducted from pay in the four months preceding the
contributions from schemes contracted out of the State earning related
pension scheme to the extent of the level by which the NI contribution
is reduced in relation to the 12 months preceding the insolvency date.
The RPO will send you an RP11 and RP 12 showing the preferential and non-preferential amounts paid to employees and how the payments were calculated. A proof of debt letter will also be sent to you stating the total preferential and non-preferential amounts due to the RPO.
House of Lords, in the case of Secretary
of State for Trade and Industry v Frid (West End Networks Ltd),
found that the RPO was entitled to Crown set-off.
The full decision is available on: http://www.parliament.the-stationery-office.co.uk/pa/ld200304/ldjudgmt/jd040513/frid-1.htm
applies to both preferential and non-preferential debts.
The Insolvency Act does not give any clear instruction as to how
the set-off is apportioned between the two classes of debt; however,
this position was resolved in the courts.
The approach is different in England and Wales to that in
Scotland (see Appendix 8 for examples of calculations).
RPO will send a revised proof-of-debt letter to inform you of the
set-off, which shows the total amount and the outstanding balances of
unpaid preferential and non-preferential debts which will have been
adjusted to reflect the amount after set-off.
It should avoid overpayments by you and requests for the RPO to
preferential claims only, section 189(3) of the 1996 Act states that
the employee’s claim and the RPO’s claim must be added together for
computing preferential amounts due. Section 189(4) of the 1996 Act gave the RPO the right to be
paid in priority to any other unsatisfied claims of employees (the
so-called “super-preference” status), however, this part only of the
Act has been repealed for cases where the date of insolvency is on or
after 15 September 2003.
From that date the RPO has equal preference with the
employee. However, if the
insolvency falls before 15 September 2003, the Secretary of State
retains super-preferential status over the claims of employees.
take care to separate claims for wages and holiday pay when making
preferential dividends, otherwise there is a danger that the employees
and the RPO could be under/overpaid.
40. Example of distribution for an employee who was made redundant in June 2002 and the insolvency date is before 15 September 2003
employee’s gross claim against his former employer is as follows:
4 weeks’ wages @ £500
per week = £2,000 (£800 preferential; £1,200 non-preferential)
6 weeks’ holiday pay @
£500 per week = £3,000 (all preferential)
Total preferential claims
to an employee from the NI Fund are limited by statute, and the RPO paid
£2,500 of the employee’s claim as follows:
4 weeks’ wages @ £250
per week = £1,000 (£800 preferential and £200 non-preferential).
6 weeks’ holiday pay @
£250 per week = £1,500 (all preferential)
RPO takes over the employee’s rights in the insolvency in respect of
the amounts it has paid the claimant out of the NI Fund.
For each category of preferential payments, the RPO must be paid
in full before the employee receives any balance of the preferential
The total claim is £3,800
made up of £800 for wages and £3,000 for holiday pay.
The RPO paid £800 wages
and £1,500 holiday pay.
The employee’s remaining
unpaid preferential claim is £1,500 holiday pay only.
a dividend of 70p in the pound is payable for preferential debts, then
the amounts available are £560 for wages and £2,100 for holiday pay.
From this, the RPO receives all the £560 available for wages plus the
£1,500 it has paid out in holiday pay. The employee would receive no
wages but £600 in holiday pay (i.e. the £2,100 available less the
£1,500 paid to the RPO).
Distributions where the insolvency date is on or after 15 September 2003
RPO retains its preferential ranking but no longer has a
super-preference status over the preferential claims of employees. The
requirement for the RPO to be paid in full before the employee is paid
was removed [Employment Rights Act 1996 s 189(4)].
However, the requirement to add together the RPO and employee’s
preferential claims and treat them as one debt for the purpose of
computing the preferential dividend remains [Employment Rights Act 1996
s 189(3)]. The need for apportionment between the Secretary of State’s and
the employee’s preferential claims for wages arises because of
the legal requirement for the claims to be treated as one for
calculation of preferential debt statutory and the statutory limit on
the amount payable, which is £800 on the wages payable in the 4 months
immediately before the insolvency date.
Any debts that fall outside of the 4-month period are out of
scope for preferential purposes and do not need to be added to the
employees gross claim for calculation purposes.
The RPO would expect an amount equivalent to the percentage of
the employees gross claim paid from the NIF on behalf of the employer.
For example, if the RPO has paid 25% of the debt then they can
expect 25% of the dividend.
Originally it was thought that all claims
would need to be apportioned but we discovered there was no need to do
so in the following cases.
Holiday pay claims. As
there is no limit on the preferential amount that can be claimed for
holiday pay, there is no need for apportionment - the RPO can claim the
full amount as preferential as can the employee.
Wages claims: Apportionment is required only where an
employee has a residual claim for wages in the insolvency.
Where the employee has no residual wages claim (RPO paid
full debt from NIF) - the RPO can claim the full amount as preferential
(subject to the £800 limit on wages).
Where the employees gross wages debt (including
the amount paid by the RPO) is £800 or less then apportionment will not
be required as the ultimate distribution will be the same whether or not
apportionment is applied.
Any weeks of a protective award that fall after the
insolvency date will be out of scope for preference, as they do not fall
within the 4-month period prior to the insolvency date.
42. Example of Apportionment of wages
employee' s gross claim against the employer is £2,000 (£4 weeks at @
£500 within the 4-month limit).
The RPO pays £1240 (4 weeks @ £310)
The employee’s residual claim is £760
(£2,000 less £1240 paid by the RPO).
The RPO has paid 62% of the
debt and would therefore expect 62% of the £800 that is available to
share between the employee and the RPO (on full dividend), which is
£496. The same principle applies to a part dividend also.
awards (PA) are treated as wages under ERA 1996 and Insolvency Act 1986,
Schedule 6. The £800 limit on wages will apply to any period of a
protective award that falls within the 4-month period before the
insolvency date. Only the
gross wages for that period needs to be added to the employee’s gross
claim for the calculation of the preferential amount due to the RPO.
Any period of the award that falls after the insolvency date is
automatically non-preferential and should not be added to the gross
claim to calculate preferential claims.
As a PA payment is made some considerable time after all the other payments, the apportionment of the original preferential wages claims on the RP 11 and RP12 may need amendment as well as the proof of debt form. However, if the whole of the award falls after the insolvency date then there is no need to re-apportion the claim.
43. Example 1 of additional PA payment (no re-apportionment)
Insolvency date 11/12/06.
Dismissal date 27/11/06.
PA for 90 days starting on
8 weeks max on the number of weeks payable
from NIF with 4 weeks already paid by RPO (as in above example).
4 more weeks @ £310 payable of which 2
weeks in scope for preference
The revised gross claim is £3,000 (6
weeks @ £500)
The RPO paid £1,860 (6 weeks @ £310) -
the residual claim is £1,140.
The RPO percentage has not changed from 62% so no re-apportionment is required. A revised proof of debt updating the amounts is required.
44. Example 2 of additional PA payment (re-apportionment required):
Weekly rate of pay is £250 and statutory limit is £310
Insolvency date 11/12/06.
Dismissal date 11/12/06.
PA for 90 days starting on 27/11/06 of which 2 weeks in scope for preference and which also overlaps with wages already paid
8 weeks max on wages payable from NIF
4 weeks @ £250 already paid by RPO
4 more weeks @ £250 payable (non-preferential) and 2 weeks @ £60 (top up to limit for 2 overlapping weeks of PA and wages).
The employee’s gross claim for wages was originally £1000 and no apportionment was necessary as the RPO paid 100% of debt and was claiming the full £800 as preferential
Because of the overlapping 2 weeks of the PA and wages the employee
now has a residual claim for wages and apportionment is required (2
weeks at £500 - double pay, and the application of the statutory limit
of £310 to those weeks).
The gross claim is £1500 (2 weeks @ £250 and 2 weeks @ £500,
which is their ordinary wages plus the PA). The RPO paid £1,120 (2
weeks @ £250 and 2 weeks @ £310 or 4 weeks @ £250 and 2 weeks @ £60
if you prefer). The
employee’s residual claim is £380 (2 weeks @ £190).
The RPO has now paid 74.67% of the debt and would expect 74.67%
of the £800, which is £576. Apportionment
is now required.
The gross claim is £1830 (2 weeks @ £305 and 2 weeks @ £610). The RPO paid £1200 (2 weeks @ £290 and 2 weeks @ £310 or 4 weeks @ £290 and 2 weeks @ £20 if you prefer). The employee’s residual claim is £630. The RPO has now paid 65.57% of the debt and would expect that % of the £800, which is £524.56. Re-apportionment is now required to show the adjusted % of the claims.
45. Effect of changes of insolvency type on the calculation of
Administration followed by CVA remains the
Administration IMMEDIATELY followed by compulsory liquidation
(by court) remains the administration date
Administration followed after a gap by a winding up the
relevant date would change to the date of the winding up order
(in theory it could happen where an administration is a successful
rescue but could be wound up by a creditor at a later date.
Administration followed by CVL (Transnational Insolvencies
only where the Member State with the MAIN proceedings requests
conversion into winding up proceedings) remains administration
Administration followed by CVL remains administration
Provisional liquidation followed by court winding up the
relevant date for preferential claims is the date the provisional
liquidator was appointed (in such cases the wages, holiday pay may
be out of scope as we would not pay until the formal winding up date,
which may be more than 4 months after the provisional liquidation.
CVL followed by compulsory winding up remains date of
Interim receiver in bankruptcy followed by bankruptcy order -
the relevant date for preference is the date the interim receiver was
Interim receiver followed by IVA - relevant date is the date
the interim receiver was appointed.
CVA followed by CVL or compulsory winding up the
relevant date changes to that of the liquidation. In a CVA there may not
be any strict pecking order for preferential claims - it depends on the
terms set by the creditors. The
RPO will assume the normal rankings at the outset when lodging the proof
of debt and if the pecking order in the CVA is different in that all
claims are treat equally (e.g. 60p in pound for all claims) we would not
have to do major amendments to the apportionment calculations as the IP
would have our full claim already on which to calculated the dividend.
receivership in tandem with liquidation - these are treated as two
separate insolvencies and will have two separate insolvency dates for
calculating the preferential claim. The Receiver is appointed over the
undertaking and controls all assets subject to the fixed and floating
charge (from which the preferential creditors are paid ahead of the
floating charge holder). The receiver does not make any distributions to
unsecured creditors. The liquidator is in charge of any free assets and
will receive any monies left over from the receivership if the
chargeholders claims are discharged in full. The preferential date for
wages claims and holiday pay would be the date the receiver was
appointed. For unsecured debts that pass to the insolvency after the
conclusion of the receivership, the relevant date would change to that
of the liquidation and any unsecured claims could be converted into
preferential claims if they fall within the 4-month qualifying period
for the liquidation. Similarly, if the preferential claims could not be
paid out of the receivership, they could convert to non-preferential if
they fall out side the qualifying period for the liquidation.
For example, a company goes into administrative receivership 21 March 2006, and the employees are dismissed and get PA starting from that date. It would be non-preferential in the receivership as it is out of scope. The company then goes into liquidation on 21 May 2006. When the receiver passes over the spare cash and unsecured claims, 8 weeks of the PA would convert to preferential because it was in the 4-month qualifying period before the liquidation date.
46. Non-preferential claims
RPO has no right to be paid in priority to employees in respect of
non-preferential debts, whether they are statutory or contractual.
Money due to the employee for preferential claims must NOT be set
off against the RPO’s non-preferential claims.
47. Taxation of dividends on taxable payments
the RPO must deduct basic rate tax and ERNIC at source, you need not pay
any further contributions on the dividend due to the RPO. However, you should pay basic rate tax and ERNIC on dividends
payable directly to the employee.
status of wages paid by a third party
some cases a bank or other third party may lend the employer money to
pay employees wages and make a separate claim in the insolvency
(Insolvency Act 1986, schedule 6, part 11). If an employee is still owed
wages at the insolvency date despite the advances made by the bank, then
the employee has first claim to the preferential payment. How much of
the third party’s claim will be preferential depends on how much
unpaid wages the employee has claimed in his or her own right.
example, an employee would have been owed £900 in wages but for an
advance of £200 from a bank. The employee’s debt is reduced by £200
to £700. The maximum
preferential amount is £800.
The whole of the employees £700 claim is preferential, leaving
£100 preferential payment to the bank.
purpose of allowing third party claims to be preferential is to
safeguard banks and other lenders who advance money to pay employees
when a company is in financial difficulty. There
is no case law on the interaction between the employee's claim and the
bank's claim or which one takes precedence. In the Insolvency Service’s
opinion, the correct procedure is to look at the employee’s unpaid
wages debt and if it comes to more than £800 the employee (and SofS)
will be preferential and the bank’s claim will be non-preferential.
If the employee’s claim is less than £800, then the bank can
claim the balance up to £800,providing the IP is satisfied that it was
an advance of wages.
49. Spectrum Plus Ltd: Floating
charge on book debts
30 June 2005 the House of Lords handed down its judgement and ruled that
the Siebe Gorman type of debentures, which are the kind normally
used by chargeholders, create a floating charge, NOT a fixed
charge. As such book debt realisations have to be allocated in line with
the Leyland Daf ruling. A
joint statement on behalf of the Crown Departments was issued setting
out the Crowns position. This statement is available on the Internet at http://www.insolvencydirect.bis.gov.uk/insolvencyprofessionandlegislation/finalspectrumstatement.doc
money from realisation of books debts has been paid directly to the bank
and the bank is refusing to return it to you for distribution to
preferential creditors, please inform the RPO dealing with the case, as
they will arrange for direct action to be taken against the bank to
recover the money.
50. Approving IP Fees
15 September 2003 the Inland Revenue and Her Majesty’s Customs and
Excise no longer have preferential claims.
The RPO, by virtue of subrogation of employees’ preference,
remains a preferential creditor. This
means that the RPO will usually be the largest preferential creditor, so
it may be asked to vote on payment of IP fees.
The address to send such requests is the office that is dealing
with the employees’ payments (see appendix 2).
A SIP 9 is required in all cases.
The exception is where an IP cannot agree his liquidation fees
with the preferential creditors. In
such cases, he/she may decide to draw fees from the floating charge fund
in accordance with Rule 4,127(A) (the ‘Ors Scale’). Although a SIP9
is not required it would be helpful to the RPO if you would explain how
the fees under the OR scale were calculated.
was long held that in liquidations that the costs of winding up a
company, i.e. the liquidator’s fees, were paid in priority to the
claims of preferential creditors and floating chargeholders. (Re:
Barleycorn Enterprises  2 All ER 155,CA.
In a landmark judgment, on 4 March 2004 the House of Lords
overruled that decision and decided that funds realised from a floating
charge are payable firstly to preferential creditors, secondly to the
chargeholder, and then can be allocated to the costs of the winding up
in priority to any other claims. (Buchler and another v Talbot and
another and others [2004 UKHL 9] that is known as the Leyland Daf
House of Lords decision is now the established law on this and cannot be
set aside irrespective of what agreement was made prior to the ruling.
The RPD, together with the Inland Revenue and HM Customs & Excise
(now one Department called HM Revenue & Customs) has issued a joint
statement that sets out the Crown Department’s position. Essentially
it says that in ALL cases where fees are outstanding post Leyland Daf
the Crown will expect that decision to be complied with. The statement
is also on the Internet at the following address http://www.insolvencydirect.bis.gov.uk/insolvencyprofessionandlegislation/policychange/policychange.htm
Leyland Daf ruling is specifically in relation to assets subject to a
floating charge. If there
is no floating charge Leyland Daf does not apply. In such cases the
Liquidator can draw his fees in priority to the preferential creditors.
Equally, if there are “free assets” – i.e. assets not subject to a
charge, the Liquidator can draw his fees from those assets. However, if
the “free assets” are insufficient to cover all the fees the balance
cannot be taken from the floating charge.
incurred by a Liquidator in carrying out certain functions can be
approved. Those are:
incurred in preserving and realising the company’s assets.
Dealing with preferential
liquidator should provide a breakdown of amount of time spent in dealing
with these functions and the costs incurred. If this is not shown, or is
not easily identifiable from the information received, the RPO will
request such before any decision is made on those costs.
to the Insolvency legislation will be introduced to reverse the Leyland
Daf judgment and will come into force on 6 April 2008. It will not be retrospective, so the above provision will
still apply during the transitional period.
Payment of cheques to the NIF
Please ensure that cheques are made payable to the NIF and sent to:
Please ensure that you quote the RPO case reference number when sending these cheques.
Appendix 1 - Insolvency categories
and relevant dates
- RPO addresses
A national help
line is available to answer any of your queries. Phone: 0845 145 0004
(all calls are charged at local rates).
booklet is only available on the internet and can be down loaded from
our website on the following reference: http://www.insolvencydirect.bis.gov.uk/guidanceleaflets/Guides.htm#Information%20about%20redundancy%20procedures
RPD forms and booklets
Calculation of a week’s pay and application of weekly limit to
A week’s pay due under contract of employment
unpaid holiday pay or ordinary arrears of pay, the amount due, subject
to the statutory weekly limit, is simply the sum due under the employee’s
contract for the period in question (see paragraph 9 for details of what
is included in claims for wages).
payments in respect of redundancy pay, notice pay, guarantee payments,
payments for time off, and remuneration on medical or maternity
suspension, we (the RPOs) have to calculate “a week’s pay” as
defined in the 1996 Act. Please
note that overtime pay is not included in calculating the basic weekly
rate of pay for working out redundancy and notice pay claims even though
is may be payable under arrears of pay.
method of calculation set out in the 1996 Act depends on whether or not
an employee has normal working hours and whether or not his or her pay
in normal working hours is liable to vary with the amount of work done.
employees have normal working hours established by their contract of
employment and any relevant working agreement between the employer and
the employees. These should be shown in their written statement of
particulars. Hours of overtime are included only if they form part of
the employee’s normal working hours. This means not only that an
employee is contractually obliged to work overtime but also the employer
is contractually obliged to provide it. If an employee’s pay for work
done in normal working hours does not vary, for example in the case of
the employee paid entirely by an hourly rate or by a fixed wage or
salary, then a week’s pay is the amount payable under the contract for
the normal working hours at the “calculation date” as defined in
sections 225 and 226 of the 1996 Act. Such pay includes any regular
bonus or allowance (except expenses allowance), which does not vary with
the amount of work done.
an employee’s pay for work done in normal working hours varies with
the amount of work done, for example under piecework systems or when pay
is partly made up of performance-related bonuses or commission, the
amount of a week’s pay is calculated by averaging the employee’s
income from the last 12 weeks worked before the calculation date. Any
pay for hours not worked, for example under a guaranteed-week agreement,
is left out of the calculation. If no pay was due for any one or more of
those weeks, the period is extended backwards to cover the last 12 weeks
for which pay was due. If the employee has less than 12 weeks’
service, the weekly rate is calculated using the number of weeks
actually worked. The pay
figure to use is the amount shown as earned, whether or not it was paid.
In the absence of wage records to show the amount earned it will
be necessary to take into account:
To get the weekly
rate of pay for monthly paid employees it is first multiplied by 12 to
get an annual salary then divided by 365 to get a daily rate then
multiplying the result by 7 arrive at a week’s pay.
For example, [£650 x 12 ÷ 365] x 7 = £149.59.
Calculation of accrued holiday pay under contract of employment
the recent guidance in the Employment Appeal tribunal case of Yarrow
v Edwards Chartered Accountants  UKEAT/0116/07/RN, which
relied on the Working Time Regulations 1998 and the case of Leisure
Leagues UK Ltd v Macconnachie  IRLR 600, accrued holiday pay
should be calculated on the basis of a ‘working’ year rather than a
365 day year.
further details on how to calculate statutory holiday entitlement is
available on the BIS website on the following reference: http://www.BIS.gov.uk/employment/holidays/index.html
the Businesslink website there is a ready reckoner for calculating
holiday entitlement for part years on the following reference http://www.businesslink.gov.uk/bdotg/action/detail?r.s=sl&type=RESOURCES&itemId=1074414822
Calculation of part of a week’s wages under contract of
employment if there are normal working hours
payable for a part week is calculated on the basis of what is reasonable
having regard to the employee’s work pattern. If, for example, he or
she works the same number of hours each day for 5 days a week and is
owed 2 days’ pay, the employee is entitled to 2/5
of his or her weekly salary (or 2/5 of the weekly
limit, if smaller).
3.2 Calculation of part of a week’s wages under contract of employment if there are varied working hours
If the number
of hours worked varies, calculations can more accurately be related to
an employee’s normal working hours.
If, for example, such an employee is owed wages for 25 of his or
her normal 42 working hours, the entitlement will be 25/42
of his or her weekly wage.
3.3 Calculation of part of a week’s wages under contract of employment if there are no normal working hours
It may consider it necessary to average the number of hours worked over a 12-week period in order to arrive at a fair calculation of the proportion that the part week represents of an average working week.
National minimum wage
the hourly rate of pay is known to be less than the national minimum
wage, the national minimum wage must be used when calculating a week's
pay. These rates are
reviewed annually. For more
information, see the BIS website at: http://www.BIS.gov.uk/employment/pay/national-minimum-wage/index.html
of weekly limit
The weekly limit is applied, where applicable, to gross debts before deductions, except in the case of a compensatory notice payment, where the limit is applied after mitigation and reduction for notional tax.
Transfer of Undertakings
The Transfer of Undertakings (Protection of Employment)
Regulations 1981 (“TUPE”) were revised and the new regulations,
called The Transfer of Undertakings (Protection of Employment)
Regulations 2006 (commonly known as TUPE 2006) came into force on 6
April 2006. The new
regulations apply to transfers that take place on or after that date.
See BIS website for full TUPE guidance on the following
reference - http://www.BIS.gov.uk/employment/trade-union-rights/tupe/page16289.html
regulations apply when a business or part of a business is transferred
to a new employer as an identifiable economic entity.
The aim of the transfer regulations is to protect employees who
are working in an undertaking when it transfers to a new owner, or those
unfairly dismissed because the transfer.
A wider definition of a
‘relevant transfer’ to include service providers.
Clarification of the rule
for transfer related dismissals.
Change of terms and
conditions in limited circumstances.
Obligation to notify
prospective transferees of employees who are to transfer.
flexibility in application to insolvent transfers.
provisions of the regulations are—
employed at the time of the transfer or
who would have been so employed had they not been unfairly dismissed
because of the transfer or a reason connected with
become employees of the new employer, on the same terms and conditions (Reg
The exception is in “relevant insolvencies” (Reg 8(6))
where the restrictions on contractual variations in Reg 4(4) are waived
under Reg 9, but only if certain conditions are fulfilled.
cannot be forced to transfer against their will, but those who do not
wish to be transferred will be deemed to have left of their own accord
and will forego entitlement to redundancy payment and compensatory
any time, which are mainly because of the transfer or a reason connected
with it, are considered unfair (TUPE, Regulation 7(1)), unless the
reason or main reason for them was an “economical, technical or
reason entailing changes in the workforce” (TUPE, Regulation 7(2)).
new employer becomes responsible for all rights, powers, duties and
liabilities under or connected with the employees’ contracts of
employment, including any outstanding contractual debts such as holiday
pay, arrears of salary and notice payments but excluding occupational
pension rights. The exception is the sum payable from the NIF where
there is a “relevant insolvency” – these do not transfer to the
transferee (Reg 8(5)).
representatives of employees of the transferor and transferee, who may
be affected by the transfer or measures taken in connection with it,
must also be informed and consulted.
transferor must provide any prospective transferees with details of
employees employed in the undertaking to be transferred at least 14 days
before the transfer, or if this is not reasonably practicable, as soon a
possible afterwards. Failure
to comply with this requirement could result in an ET award of up to
£500 compensation per employee if a tribunal upholds a transferee’s
complaint. A copy of this information should also be sent to the RPO
with the RP14 form, as it will help to identify those employees who
worked in the part of the undertaking transferred to a new owner and
save you from making a separate list for the RPO.
not a transaction amounts to a relevant transfer within the meaning of
TUPE depends on the precise circumstances. In general terms, the test is
whether there has been the sale or acquisition of a stable economic
entity that retains its identity. Examples of transactions that may not
count as relevant transfers include—
“Asset” only transfers
(that is, goods and chattels only).
Supply of goods to client.
Completion of work in
between government authorities.
A ship ceases to be
registered in the UK.
In 1986 the
European Court of Justice set out a number of factors that are to be
taken into account in determining whether there has been such a transfer
(Spijkers v Gebroeders Benedik
Abbatoir CV, 24/85  ECR 1119 ECJ). This approach is followed
by the UK courts (Cheeseman and
others (appellants) v R Brewer Contracts Limited (respondents) 
IRLR 144. These
the type of
undertaking or business concerned;
not the business’s tangible assets (e.g. buildings and moveable
property) have been transferred);
the value of
the business’s intangible assets at the time of the transfer;
not the majority of the employees are taken over by the new employer;
not the old business’s customers are transferred;
the degree of
similarity between the activities carried on before and after the
transfer, and the period (if any) during which those activities were
however, made it clear that these are all merely single factors in the
overall assessment that must be made, and cannot be considered in
isolation. What is crucial is whether an ‘economic entity’ is
transferred, and this is to be determined on an overall assessment of
all the circumstances, no single factor being conclusive either way.
The courts have not extensively interpreted the term “economic,
technical or organisational
(ETO) reasons entailing changes in the workforce”. So the following
represents no more than the RPO’s broad view and should not be taken
as a definitive statement of the law. In cases of doubt it will be for
an employment tribunal to determine the matter on the facts of the
The RPOs believe that where there is a genuine redundancy within
the meaning of section 139(1) of the Employment Rights Act 1996, this
will be likely to fall within the meaning of “economic, technical or
reasons entailing changes in the workforce” (Reg 7(2)). However, not
all dismissals that appear to be by reason of redundancy will fall
within that Regulation. If, for example, a clause in the transfer
agreement required the transferor to dismiss the employees before
completion, even if that were held to be a redundancy within the meaning
of section 139(1) of the 1996 Act, it would not necessarily fall within
Regulation 7(2) because it would not be a reason that related to the
conduct of the business. Subject to the warning above, the following may
help you decide whether Regulation 7(2) applies—
An example of
an “economic” reason is where demand for a particular product has
fallen so far that the company’s profitability no longer allows so
many staff to be employed or where a particular contract for goods or
services has been terminated and there is no other work for the staff
previously engaged on that contract.
An example of
a “technical” reason is where the company has been employing staff
on manually operated machines and the new employer wishes to use only
machinery, for which the existing employees do not have the technical
skills or for which fewer employees are needed.
An example of
reason is be where a company at one location is taken over by another at
a distant location, to which it is not practical to relocate the staff.
An argument that an employee has been dismissed for an ETO reason
will not usually be sustainable if the employee continues to work for
the transferee, even if on different terms and conditions; in BISiman
v Delabole Slate Ltd ( ICR 546) the Court of Appeal decided
that for a change in the workforce within the meaning of the TUPE 1981
Reg 8(2) [now Reg 7(2)] there had to be a change in the numbers of the
workforce or, possibly, their job functions which, although involving no
overall reduction in the numbers, involved a change in the individual
employees who made up the workforce.
The regulations have been changed in respect of insolvent
transferors in that limited assistance from the NIF will now be
given to employees who transfer to the new owner.
The aim is to make it easier to sell the undertaking as a going
concern. Regulations 4 and
7 do not apply to an insolvency where the undertaking is wound up and
the proceeds are distributed to creditors (Reg 8(7)), which include
Bankruptcy, Compulsory liquidation and Creditors Voluntary Liquidations
(CVL). Regulations 4 and 7
will apply to insolvencies where the purpose is to rescue the business (Reg
8(6)) – known as “relevant insolvency proceedings”.
This includes administration, members’ voluntary liquidation
(for ERA 1996 purposes), voluntary arrangements and administrative
receivership. Guidance on what is a relevant insolvency for the purposes
of and 8(6) can be found on our website on the following reference http://www.insolvencydirect.bis.gov.uk/redundancyandinsolvency/mailtupeguidance.doc
Whether a CVL is in or out may be contested by at some future
date. The wording of the
legislation is not particularly clear on this and different views have
been expressed by different leading legal authorities (Harvey’s
Payments to transferring employees will not be considered
unless the employer was insolvent on the date of transfer.
If the business transfers and the transferor becomes insolvent at
a later date the employees who transfer will not be entitled to
assistance from the NIF. The
meaning of when insolvency proceedings have been opened or instituted (Regs
8(6)-(7)) has been tested in the case of Secretary of State for Trade
and industry v Slater & ors  IRLR 928), where the
Employment Appeal Tribunal concluded that the commencement of insolvency
proceedings must be determined by the formal rules applicable to the
To assist the rescue of all, or part, of an insolvent business,
the RPO will pay certain debts owed by the transferor to the employees
who go to work for the new owner.
Employees who transfer to the new owner will be paid wages and holidays taken but unpaid up to the statutory
limits. The RPO’s debt
will stay with the insolvent company – it cannot be recovered from the
transferee (Reg 8(5)). The
transferee will pay the residual contractual debt.
No redundancy pay or notice pay will be paid, as there is no
dismissal. The deemed dismissal (Reg 8(3)) relates only to insolvency
payments in Part XII of the Employment Rights Act 1996 and redundancy
pay is under Part XI. Accrued
holiday pay will not be paid as at the time of the deemed dismissal they
would not be entitled to them and the right to take holidays at some
later stage in the holiday year continues with the new owner.
Employees’ whose dismissal is transfer related but is for ETO reasons.
They are now considered to be redundant under TUPE 2006 (Reg
7(3)(b)) and the RPO will pay redundancy pay, wages, holiday pay
(including accrued holiday pay) and notice pay as usual.
Prior to the changes made in TUPE 2006, any dismissal connected
with the transfer, whether ETO or not was classed as unfair dismissal,
which meant that the employees had to seek tribunal awards.
Now they can claim redundancy pay through the normal redundancy
Employees who are dismissed
because of the transfer and there is no ETO reason will be paid
wages and holiday pay (including accrued holiday pay).
RP will not be paid, as they were not dismissed by reason
of redundancy. CNP will not
be paid as this may form part of the compensatory element of an
employment tribunal (ET) award for breach of contract. Employees may
make a claim to an ET for an unfair dismissal award and breach of
contract (notice pay). It will be for the ET to determine whether the transferor or
transferee is liable to make the payment.
If the transferor is liable then the RPO will pay the basic award
(and notice pay if any is awarded).
Employees who refuse to
transfer will be paid wages and holidays pay.
RP and CNP will be rejected as there is no redundancy and they
are treated as having left employment of their own accord.
12. In order to determine entitlement to payment from the NIF the RPO sends out the RP14 questionnaire for details of the transfer. This documents asks for a copy of any sale document be sent to the RPO with the form. Some IP’s are reluctant to provide copies of sales documents on the ground of commercial confidentiality. I should explain that the RPO (who represents the Secretary of State) has statutory powers to obtain information in respect claims made to the NIF on the insolvency of an employer. The relevant statutory power is in Section 190 of the Employment Rights Act 1996. This provides for an employer, or any persons having custody or control of any relevant records or documents to produce them for examination by the Secretary of State. The written notice is on the RP14 form and a failure to comply could result in a fine. The whole idea of asking for copies of the documents is to avoid rejecting claims out of hand and going to an employment tribunal, which will require your attendance, with copies of the documents, to explain the matter to the tribunal. If you have any misgivings about supplying copies of the sales documents please let the RPO know and they will send one of our Inspectors to visit you to read and takes notes of the relevant parts of the sale document before going down the tribunal route.
Claimants whose employee status may be in doubt
Company office holders
company director, and company secretary, is normally classed as an
office-holder. But an office holder may also be an employee of the same
company. The matter is to be considered on the basis of all the
leading authority is still the Court of Appeal judgment in Secretary
of State for Trade and Industry v Bottrill (1999) IRLR 326 which
decided that although the shares held by the director (office holder –
our insertion) are of importance and could in certain cases be
the deciding factor, all the circumstances of the relationship between
the director and the company must be considered to establish whether the
relationship is the same or sufficiently similar to that of “ordinary”
employees to make the director an employee of the company.
points a tribunal may wish to consider are:
A decision that an
office holder is not an employee for the purposes of the Employment
Rights Act 1996 does not prevent the person being classed as such for
the purposes of other legislation, e.g. tax or social security
Temporary agency worker
we all know ‘Employee Status’ is a movable feast. This is
particularly so with agency workers. For the time being at least the
authorities are clearly stating that 99 times out of 100 the ‘temps’
are not employees of the employment agency. There does not seem to be
any definitive ruling as to whether they may be employees of the
Court of Appeal, in the case of Dacas
v Brook Street Bureau (UK) Ltd  IPLR 358, held that
a temporary worker was not an employee of the agency.
It did question whether a temporary worker could be an employee
of the client but made no legal ruling on this.
the case of Cable & Wireless plc v. Muscat CA  IRLR 354
the ‘temp’ was not found to be an employee of the agency but was
found to be an employee of the client/end user. The circumstances of
this case are different in that Mr Muscat had originally been an
employee of the client and the instigation of that client was told to
supply his services through an agency. Other than receiving his salary
through the agency from then onwards, nothing had changed from when he
had first started with the client as an employee. The Court of Appeal,
in our view, rightly decided that you couldn’t take somebody’s
employee status away simply by changing the pay-roll provider.
This case can be distinguished from the Dacas and James cases in
that they had been treated as agency workers from the outset.
the case of James v. Greenwich Council  UKEAT 6/06 the ‘temp’
worked for the client for 5 years. It seems she claimed to be an
employee of the client using the side comments made in the DACAS
case. The EAT; again, found her not to be an employee of the agency. It
also found her not to be an employee of the client, ruling that the
length of an assignment will not automatically make someone an employee
of the client unless there are other factors that point to there being
an employer/employee relationship (as in Cable & Wireless).
light of the case law it is highly unlikely that an agency worker would
be classed as an employee of an employment business. It is also unlikely
that he/she would be classed as an employee of the client/end user.
This means that they should claim directly in the insolvency for
Subcontractors, freelance and casual workers
though commonly associated with the building trade, covers a wide range
of industries and occupations. Those sub-contractors who are clearly in
business on their own account and who provide services to several
different customers, are generally easy to identify.
However, many individuals may have been considered by a business to be self-employed, but their working relationship suggested that they were, in fact, employees of the business within the meaning of the 1996 Act. In determining employee status the balance of all relevant factors must be taken into account. To be considered are mutuality of obligation, control and other factors such as:
was the individual free to
accept or refuse work for the contractor;
did he or she work under
any express contractual arrangements, and if so was it a contract of
what were the arrangements
(if any) for supervision of the work, holidays, sickness and pensions;
did the individual have to
carry out the work personally or could they hire or supply someone to do
it on their behalf?
whether the worker’s involvement included a share of the profits or a
risk of loss;
whether the work was
being done on the worker’s own account of for the employer;
basis of payment - was
the individual paid a regular weekly wages into his or her personal bank
account or paid into a his or her business account on the completion of
The basis on which
the individual paid tax and national insurance contributions and the
label put on the relationship by the parties are factors to be taken
into account, but neither will itself determine the issue.
Only “employees” as defined by section 230(1) of the Act are entitled to payments from the NIF. The Working Time Directive has a much broader scope and refers to “workers”. Satisfying the definition “worker” does not automatically mean that that person satisfies the definition of “employee”.
pension scheme contribution
124 of the Pension Schemes Act 1993 (as amended) provides for the
payment of certain contributions that are owed to an occupational or
personal pension scheme when an employer becomes insolvent. “Persons
competent to act” under the trust deed or rules of a scheme (for
example, the trustees) may apply for payment to a scheme.
following contributions are payable:
contributions on behalf of an employee,
i.e. contributions which have been deducted from the pay of the
employee, but which have not been paid into the resources of the scheme,
up to a maximum of the amount deducted from the employee’s pay in
respect of his/her contributions to the scheme during the 12 months
ending on the day before the employer became insolvent;
contributions payable by the employer
on its own account, to a limit of whichever is the least of:
the balance of
the employer’s contributions relating to the 12 months ending on the
day before the employer became insolvent;
certified by an actuary as necessary for the scheme to meet its
liability on dissolution for payment of benefits to the employees (this
condition does not apply to “money purchase” schemes);
equal to 10% of the total pay of the employees concerned for the 12
months ending on the day before the employer became insolvent.
trustees or administrators of the scheme should apply for payment from
the NI Fund on form RP15 enclosing form RP16 (actuarial certificate) if
appropriate. Since the
amount payable in respect of the employer’s contributions does not
depend on the result of a preferential claim, the completion of form
RP16 need not await the declaration of a preferential dividend. You
should agree the claim with the scheme’s trustees or administrators,
complete Part 2 of form RP15 and send it to the RPO with form RP16 if
appropriate. The RPO will make the payment directly to the pension
scheme’s bank account or that of the trustee or administrator.
Please ensure that the correct pension scheme reference number is
put on the RP15.
IL2 “Insolvency of employers: safeguard of pension scheme
contributions” gives further information.
Crown set off
1 Set-off in
England and Wales
2 Windows Ltd.”
– Chancery Division (Companies Court) (1986) BCLC 31.
was a company in liquidation with enough assets to meet the claims of
its preferential creditors but nothing to meet those of the ordinary
creditors. One of the creditors was the Crown, represented by the
Department of Health and Social Security.
The DHSS sought to set off the VAT refund firstly against the
non-preferential debt. The
liquidator disputed this, stating it should be firstly set off against
the preferential debt. The
Court held that under English law there must be a balancing of accounts
in insolvency; the authority for set-off was not intended to benefit any
class of creditor at the expense of another; and that the credit should
be set off proportionately between the preferential and non-preferential
part of the debt.
Apportionment of set-off between the two classes of debt
amount of the debt to which Crown set-off is applied is the total debt
lodged by the RPO with the IP. The
apportionment is as follows;
Establish the percentage
of RPO preferential debt. The calculation should be made to two decimal
Establish the amount of
the Crown set-off using the percentages figure in above.
balance remaining will be the amount of non-preferential set-off.
total VAT credit available for set-off was £10,000.
Four government departments were together owed £12,000.
The RPD’s portion was £2,000, made up as itemised below:
Set-off in Scotland
v Lord Advocate” - Court of
Session (1993) BCLC 1463
this case the Inland Revenue had set off the total payment against its
non-preferential debt. The Receiver challenged this, arguing that it
should be set off proportionately between the non- preferential and
preferential elements of the debt, as was the position in England. The
Court of Sessions ruled that in Scotland the law of compensation applies
to set-off – i.e. there is no balancing of accounts, and a creditor
can apply the set-off to whichever class of debts is most favourable to
him or her.
Apportionment of set-off between the two classes of debt
payment should be set off in the first instance against the non-preferential
element of the debt, and any balance remaining against the
background is that the total VAT credit available for set-off was
£10,000. Four government
departments together had a total of £12,000 owed to them.
The RPD’s portion was £2,000, made up as itemised below:
of insolvency and employment rights terms used in the booklet